Budget Resolutions and Economic Situation

John McDonnell Excerpts

Thursday 17th March 2016 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

It has now been the best part of 24 hours since the Chancellor delivered his Budget. There are some things in it that I would like to welcome. On the sugar tax, we look forward to seeing more detail about how it will be put into practice. I agree with my right hon. Friend the Member for Islington North (Jeremy Corbyn) who said yesterday that we needed a comprehensive strategy to tackle the growing problem of obesity. I regret, therefore, that £200 million has been cut from public health budgets this year—those are the budgets that were to be used to develop that strategy.

We are also pleased that the Chancellor is looking at addressing savings overall, though we wonder whether the new lifetime individual savings accounts will do much to address the scandal of low retirement savings for the less well-off. On the rise in tax thresholds, we welcome anything that puts more money in the pockets of middle and low earners, but we wonder how that aim can sit alongside the Conservatives’ plans to cut universal credit.

It is about time that we had some straight talking about what this Budget means. It is an admission of abject failure by the Chancellor. For the record, in the six years that he has been in charge of the nation’s finances, he has missed every major target he has set himself. He said that he would balance the books by 2015, but the deficit this year is set to be more than £72 billion. He said that Britain would pay its way in the world, but he has overseen the biggest current account deficit since modern records began.

[Sir Edward Leigh (Gainsborough) (Con)]

I want to help the Labour party in every way that I can. I want it to be credible at the next election, but the shadow Chancellor took to the airwaves this morning and talked about borrowing more money. Will he give us an absolute commitment that, if he were to become Chancellor, he would not borrow more money than the present Chancellor? He can just say yes.

--- Later in debate ---

[John McDonnell]

The present Chancellor has borrowed £200 billion more than what he promised. Let us be absolutely clear that like any company, UK plc under us will invest—it will invest in plant and machinery to create the growth that we need if we are to afford our public services.

Let me go back. The Chancellor promised us a “march of the makers”, but manufacturing still lags behind its 2008 levels. He said he would build his way out of our housing crisis, but we have seen new house building fall to its lowest level since the 1920s. He said that he had moved the economy away from reliance on household debt, but, yesterday, the Office for Budget Responsibility said that his entire plan relied on household debt rising “to unprecedented levels.” He said that he would aim for £1 trillion of exports by 2020. Yesterday’s figures suggest that he will miss that target by the small matter of £357 billion.

When it comes to the Chancellor’s failures, he is barely off the starting blocks. The fiscal rule he brought before Parliament last year had three tests. We already knew that he was likely to fail one of them, with the welfare cap forecast to be breached. Yesterday, it emerged that he will fail the second of his tests. Having already raised the debt burden to 83.3% of GDP, it is set to rise now to 83.7% this year. Therefore, since the new fiscal rule was introduced, it is nought out of two for the Chancellor’s targets.

[Lucy Frazer (South East Cambridgeshire) (Con)]

The hon. Gentleman started by saying that we needed some straight talking. In order to be fiscally credible, one needs to have concrete figures. The Chancellor has said in his Budget that he will borrow £1 in every £14 in 2016-17. Will the shadow Chancellor tell us what his borrowing figure will be?

[John McDonnell]

Unlike the current Chancellor, we will not set ourselves targets that can never be realised, and we will create an economy based on consultation with the wealth creators themselves—the businesses, the entrepreneurs and the workers. In that way, we will have a credible fiscal responsibility rule.

Yesterday, the OBR revised down its forecast for growth for this year, and for every year in this Parliament—in some cases by significant margins. That is reflected in lower forecasts for earnings growth. The Resolution Foundation says that typical wages will not recover to their pre-crash levels before the end of this decade. It is not just forecasts for economic growth and wages that are down. Those are driven by productivity, which has also been revised down for every year of this Parliament. Any productivity improvements last year have disappeared. As the OBR said, it was, “Another false dawn”. Perhaps that is not surprising. After all, productivity is linked to business investment, which should be driving the recovery, but which plunged sharply last quarter.

[Helen Whately (Faversham and Mid Kent) (Con)]

I have noticed that the hon. Gentleman does not like answering the question on how much he would be willing to borrow were he Chancellor. Is there any limit to the amount that he would be willing to borrow and to the debt that he would be willing to pass on to future generations?

--- Later in debate ---

[John McDonnell]

I find it extraordinary that this Government want to talk about debt. Under this Government, the debt that our children will inherit will be £1.7 trillion. Under their watch, the debt has risen significantly—it has almost doubled. When we go forward, we will ensure that our borrowing will be based on sound economic advice from the wealth creators. Unlike this Government, we will create economic growth. This Chancellor is borrowing to fund cuts in public services, not to invest in growth or productivity.

[Several hon. Members rose—]

[John McDonnell]

I will press on, and then I will give way—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Members may think that this noise is not loud, but it is very loud when you are in the Chair trying to listen to the shadow Chancellor. The problem is that it does not do this Chamber any good in the eyes of the public when they cannot hear either.

[John McDonnell]

Thank you, Mr Deputy Speaker—[Interruption.}

[Mr Deputy Speaker]

Did somebody wish to comment? Okay, we will carry on.

[John McDonnell]

Let me assure Members that I will give way, but let me proceed a bit further.

As I have said, perhaps the fall in productivity is unsurprising, because productivity is linked to business investment, which should be driving the recovery, but which plunged in the last quarter.

[Jeremy Quin (Horsham) (Con)]

rose—

[John McDonnell]

I will give way in a moment. I can tell the House what happened to business investment forecasts—they were revised down again in this Parliament. None of this should be a surprise for the Chancellor, but it seems that it is. At the autumn statement, he said that he wanted a plan

“that actually produces better results than were forecast.” ”.—[Official Report, 25 November 2015; Vol. 602, c. 1385.]

[Rishi Sunak (Richmond (Yorks)) (Con)]

rose—

[John McDonnell]

I will come back to the hon. Gentleman. The Secretary of State for Work and Pensions said this last week about the autumn statement:

“If you can’t forecast more than two months, how in heaven’s name can you forecast the next four or five years.”

That is what we all want to know.

[Jeremy Quin]

Productivity, to which the shadow Chancellor is referring, is also linked to employment. Does he welcome the extra 2.3 million people in work since 2010?

[John McDonnell]

Of course we welcome that employment growth, but we are concerned about the insecurity of that employment. The number of zero-hours contracts has gone up by another 100,000 over the past month, and the insecurity of that employment, unfortunately, is affecting people’s long-term investment plans as well.

Yesterday the Chancellor pointed repeatedly to global economic headwinds as an explanation for his failure. His problem is that we have known about them for a while. Many of us were warning him last summer about the challenges facing the global economy. I spoke about them in this place, as did others on the Labour Benches, but rather than adapting his proposals to deal with the global reality, the Chancellor has charged headlong into another failure of his own making. He has failed to heed our warnings and the warnings of others, he has failed to invest in the key infrastructure that our economy needs, and as a result he has failed to boost Britain’s productivity figures.

[Rebecca Pow (Taunton Deane) (Con)]

Is it not the case that our Chancellor is being very adaptable, as we heard yesterday? Is it not the case that the Opposition have an economic credibility strategy which essentially reverts to exactly what they did before—more borrowing, more spending, and higher taxes? It did not work then, so why would it work now?

[John McDonnell]

The hon. Lady might describe the Chancellor as adaptable. Most of the media and most independent analysts described him today as failing—failing on virtually every target he set himself under his own fiscal rule.

[Imran Hussain (Bradford East) (Lab)]

Is it not the case that this Budget has failed on growth, productivity and fairness? Is this not a failed Budget that has been sugar-coated?

[John McDonnell]

Regrettably I do not think it has been sugar-coated for many of those who will be suffering the cuts included in this Budget.

On productivity, it is the Chancellor’s failure to boost Britain’s productivity that is at issue. The Office for Budget Responsibility is very clear on this point. British productivity, not global factors, is the reason the Chancellor is in trouble. Robert Chote, the head of the OBR, confirmed in an interview last night that “most of the downward growth revisions were not driven by global uncertainty, but by weaker than thought domestic productivity.” As a result of that, we now see drastically reduced economic forecasts and disappointing tax revenues.

The Chancellor has been in the job six years now. It is about time he took some responsibility for what has happened on his watch. It is not just on basic economic competence that the Chancellor has let this country down. Unfairness is at the very core of this Budget and of his whole approach.

[Lucy Frazer]

Will the hon. Gentleman give way?

[John McDonnell]

I will press on, if the hon. and learned Lady does not mind.

The Chancellor said in 2010 that this country would not make the mistakes of the past in making the poor carry the burden of fiscal consolidation. The facts prove that that is just not accurate. According to the Institute for Fiscal Studies, the long-run effect of all tax and benefit changes in last year’s autumn statement would mean percentage losses around 25 times larger for those in the bottom decile than for those in the top decile.

[Alok Sharma (Reading West) (Con)]

The hon. Gentleman and the Opposition are suffering from some form of collective amnesia. Does he not remember that the British economy was on life support in 2010 when the Chancellor took over? The body of the economy was barely twitching. Why does he not acknowledge the fact that since 2010 growth is up, wages are up, employment is up and the deficit is down? He should be praising the Chancellor, not saying the economy is going down.

[John McDonnell]

Will the hon. Gentleman acknowledge that the objective statements of the past 48 hours have demonstrated that all the factors that he mentions are falling back, and that we now face a serious problem that should be addressed by a responsible Government when they see their own fiscal rule and economic policies failing?

Let me repeat what the IFS said so that everyone is clear: the percentage losses were about 25 times larger for those at the bottom than for those at the top. So much for the Government’s statement about the broadest shoulders taking the strain. Furthermore, time and again, it is women who have borne the brunt of the Chancellor’s cuts. Recent analysis by the Women’s Budget Group showed that 81% of tax and welfare changes since 2010 have fallen on women.

[Rachael Maskell (York Central) (Lab/Co-op)]

Does my hon. Friend agree that it is not just women who have borne the brunt, but disabled people? Half a million disabled people are losing between them £1 billion. Surely not even Conservative Members can stand this anymore.

[John McDonnell]

I fully concur with my hon. Friend. I will come back to that point.

The distributional analysis by the Women’s Budget Group shows that by 2020 female lone parents and single female pensioners will experience the greatest drop in living standards—by 20% on average. In the case of older ladies, the single female pensioners, the cuts in care are falling upon their shoulders. I find that scandalous in this society.

It is disappointing, too, that the Budget offered no progress on scrapping the tampon tax. The Chancellor is hoping for a deal from the EU on the tax. If there is no deal, we will continue to fight for it to be scrapped.

[Lucy Frazer]

The hon. Gentleman mentioned that productivity was down for domestic reasons, not for international reasons. Can he therefore explain to me why the Congressional Budget Office in the US has reduced its forecast for potential productivity growth by 8.9 percentage points, which is lower than that for this country?

[John McDonnell]

That relates to the US economy. The figures that I quoted were not mine. They were from the Office for Budget Responsibility, which referred to domestic productivity falls.

Young people have also paid a heavy price during the Chancellor’s tenure. It is not just the education maintenance cuts in the last Parliament, or the enormous hikes in tuition fees; it is the dream of home ownership receding into the distance for young people on average incomes. The new Lifetime ISA will not resolve that. With pay falling so sharply for the young, there can be very few who can afford to save £4,000 a year.

We know that so far on the Chancellor’s watch, people with severe disabilities have been hit 19 times harder than those without disabilities. If that were not enough, the Government are now taking over £100 a week out of the pockets of disabled people. Even for a Chancellor who has repeatedly cut public spending on the backs of those least likely or least able to fight back, this represents a new low. I believe it is morally reprehensible.

[Huw Merriman (Bexhill and Battle) (Con)]

The shadow Chancellor is being very generous with his time. With respect to owning one’s own home, will he not take into account that the Help to Buy scheme has helped thousands of first-time buyers, 82% of whom would not have been able to buy their home without that scheme?

[John McDonnell]

The problem, as the hon. Gentleman will acknowledge, is housing supply. Because of the failure to build homes under this Budget, I fear that the interventions that the Government may make, which I often welcome, may force up prices, rather than allowing access to homes. The hon. Gentleman shares with me the desire that young people should be able to afford a home, and with me he should campaign now for more housing construction. That means investment, and sometimes you have to borrow to invest.

[Christopher Pincher (Tamworth) (Con)]

Will the shadow Chancellor give way?

[John McDonnell]

I will come back to the hon. Gentleman.

On disability, I am appealing to the Chancellor to think again. We will support him in reversing the cuts in personal independence payments for disabled people. If he can fund capital gains tax giveaways for the richest 5%, he can find the money to reverse this cruel and unnecessary cut.

[Andy McDonald (Middlesbrough) (Lab)]

Does my hon. Friend agree that if the Chancellor is not going to listen to the Opposition on the draconian cuts to these benefits, he will perhaps listen to Graeme Ellis, the chair of the Conservative Disability Group, who, as a result of these pernicious cuts, is cutting all links with the Conservative party?

[John McDonnell]

I just say this across the House: this is a very important issue—we will not make party politics of this. As someone who has campaigned on disability issues in the House for 18 years, I sincerely urge all Members to press the Chancellor to think again. This cut is cruel, and it is, unfortunately, dangerous for the wellbeing of disabled people.

[Several hon. Members rose—]

[John McDonnell]

With the greatest respect, I have just been reminded that I have spoken for more than 20 minutes, and I know there is a crowded schedule. I have given way extensively, and I would like to press on.

If corporation tax—already the lowest in the G7—can be reduced yet further, money can be found so the Government can think again about making yet more cuts to people with disabilities.

Finally, I want to talk about the future. Yesterday’s Budget does not meet the needs and aspirations of our society. It fails to equip us for the challenges ahead. It fails to lay the foundations for a stronger economy that could deliver prosperity shared by all.

The Chancellor has repeatedly told us we are the builders, and yesterday we heard more of it. On infrastructure, we are back to press-release politics: projects announced with no certainty of funding to complete them—projects that should have started six years ago. It is always tarmac tomorrow. If stories about garden suburbs sound familiar, it might be because we have heard them before. Announcements about garden suburbs have become a hardy perennial of the Chancellor’s announcements.

However, despite all the rhetoric, all the re-announcements and all the photo opportunities in high-vis jackets, one statistic is in black and white in the OBR’s documents: public sector investment as a share of GDP is scheduled to fall from 1.9% last year to 1.5% by the end of this Parliament—a lack of investment in our infrastructure that will hold back the growth of our economy.

On education, it seems that we are back to the politics of spin and stunts. Forcing schools to become academies will do nothing to address the shortage of teachers, the shortage of school places and increasing class sizes. Forcing schools to compete for the extra-hour funding places more bureaucratic burdens on headteachers, with only a one-in-four chance of gaining that additional funding.

We have learned this morning that there is a half-a-billion-pound black hole in the funding needed for the Chancellor’s plans for schools. I would welcome the Secretary of State for Education confirming whether she will find the money to ensure that, if academisation is funded, schools are fully funded for that process.

As for long-term financial planning, it is increasingly clear that the Chancellor is determined to flog off anything that is not nailed down, in a desperate attempt to meet his self-imposed targets.

[Several hon. Members rose—]

[John McDonnell]

I have spoken for more than 25 minutes. You have made it clear, Mr Deputy Speaker, that there are many Members who want to speak. I have been extremely generous in giving way—more than any other shadow spokesman before.

Last year, we noted that the Chancellor could meet the conditions of his fiscal rule only by selling off profitable state assets, even at a loss to the taxpayer. Official figures yesterday suggested that taxpayers will face a loss of more than £20 billion pounds as a result of the Chancellor’s decisions on RBS share sales.

Yesterday, again, we learned that the Government are considering the privatisation of the Land Registry. That is despite their deciding against it as recently as 2014. That is despite the Land Registry returning millions of pounds in profits to taxpayers. That is despite a 98% customer satisfaction rate. It makes no difference to this Chancellor: everything must go, everything is up for sale. When will he learn that you cannot keep paying the rent by selling the furniture?

The Chancellor has consistently put his political career ahead of the interests of this country. Yesterday he tried to do the same, and he failed. His disastrous economic failures are the result of putting personal ambition ahead of sound economics.

The Chancellor is clinging to the tattered remains of his fiscal charter, using it to justify brutal cuts to vulnerable people. In contrast to his rule—widely savaged by economists, and now on the point of being torn up by Government statisticians—Labour has a real alternative. Labour will build a society based on a fair tax system, where the wealthy and powerful pay their fair share. In line with recommendations from the OECD, the IMF, the G20, the CBI and the TUC, Labour will invest to grow opportunity and output. Labour will eliminate the deficit by growing our economy. Labour will invest in skills for a high-wage, high-tech economy.

In contrast to the Chancellor’s broken promises, we will balance Government spending, using a fiscal credibility rule developed, and recommended to us, by the world’s leading economists—our economic advisory council. We will balance Government spending, but not, like the Chancellor, by bullying those who will not fight back. We will invest to deliver shared prosperity, with people able to fulfil their potential, and a country meeting its potential.

Let me make this clear: Labour does not want to see the Chancellor drive the economy over a cliff, blinded by his adherence to a fiscal rule that everyone now knows cannot work. In the interests of this country, we are making him an offer: let us work together to design a fiscal framework that balances the books without destroying the economy. However, let me also make this clear: if he refuses our offer of co-operation, Labour will fight every inch of the way against the counter- productive, vindictive and needless measures the Chancellor has set out in this Budget. Britain deserves better than this.